Centre for Development Economics
Department of Economics, Delhi School of Economics


Ramsey Equilibrium with Liberal Borrowing


Ram Sevak Dubey

Montclair State University

Thursday, 23rd July 2015 at 3:00 PM

Venue : Seminar Room (First Floor)
Department of Economics, Delhi School of Economics

All are cordially invited

This paper considers a multi-agent one-sector Ramsey equilibrium growth model with borrowing constraints. The extreme borrowing constraint used in the classical version of the model, surveyed in Becker (2006), and the limited form of borrowing constraint examined in Borissov and Dubey (2015) are relaxed to allow more liberal borrowing by the households. A perfect foresight equilibrium is shown to exist in this economy. Each equilibrium’s aggregate capital stock sequence is eventually monotonic and is shown to converge to the unique stationary equilibrium capital stock and the impatient households are eventually in the maximum borrowing state and remain so for all subsequent periods, whereas the most patient household eventually owns the entire capital stock and the other households debts. This convergence result is unlike the possibility of non-convergent equilibrium capital stock sequences in the model with no borrowing and like the equilibrium outcomes in the model with limited borrowing. Here, the convergence theorem is independent of the production technology employed by the firms. As the borrowing regime is progressively liberalized, the Gini coefficient of steady state wealth distribution increases.

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